Amazon Risks Customer Loyalty in Fight Over Kids' In-App Purchases

It might not matter if Amazon is on the right side of the law if it gets on the wrong side of its customers. The FTC has accused the company of making it super-easy for kids to accidentally make in-app purchases and super-difficult for the adults billed for them to get refunds. Instead of settling and offering some cash back with an apology, Amazon has adopted a defensive posture.

By Erika Morphy
Jul 11, 2014 3:21 PM PT

Amazon has been synonymous with excellent customer service since its inception. That stellar reputation could become tarnished, however, if its current flap with the Federal Trade Commission gets out of hand.

The FTC on Thursday filed suit against Amazon alleging that its poor controls permitted children to make millions of dollars in unauthorized purchases through its Appstore.

Similar accusations have been circulating for years, and not only with respect to Amazon. Other companies, including Apple, have been targeted, said David Johnson, CEO of Strategic Vision.

Still, "fighting with the FTC on this issue -- one that even Apple settled! That just doesn't look good," he told CRM Buyer. "It really looks like they don't care about what their customers think."

The FTC had offered to settle, but Amazon reportedly was not receptive.

The FTC is demanding that Amazon put in place permanent controls to prevent unauthorized purchases, refund payments for those already made, and improve the process for refunding unauthorized payments if they should occur in the future. The commission also may petition for damages.

'Deceptive Acts'

Amazon's behavior is at odds with its reputation for anticipating what customers want and investing proactively in technology to assist them.

Amazon began billing for in-app charges in November 2011, the FTC alleges in its complaint, "well after media reports about children incurring unauthorized charges in similar apps from other mobile app stores."

In short, Amazon had ample warning that unauthorized purchases by children could be a problem.

Yet it proceeded with imposing the charges, failing to obtain parents' or account holders' informed consent. It was just a few weeks after Amazon implemented its in-app billing service that consumer complaints about the unauthorized charges began pouring in, the FTC said.

Many customers found themselves on the hook for up to hundreds of dollars in charges, according to the commission.

Amazon vs. Apple

The FTC made similar charges against Apple, which eventually agreed to its demands. Along with making the requested changes, Apple agreed to pay at least US$32.5 million in restitution to customers who had been affected.

Its rivalry with Apple may be one reason Amazon is resisting the FTC, theorized Charles King, principal of Pund-IT.

"The FTC is basically saying that the Amazon situation is analogous to Apple's, and it wants it to institute similar controls. Amazon, though, prides itself on its differentiation from Apple," he told CRM Buyer.

Also, Amazon does tend to be more aggressively litigious than Apple in certain matters, King added. "It is willing to go to the trenches with their legal departments to protect themselves against such accusations."

A Seamless Experience

Ironically, one reason Amazon may be digging in its heels -- and damaging its reputation as a top customer service provider -- is that tighter controls could translate into a less-than-seamless customer experience.

Amazon has been competing aggressively with Apple in this respect, Strategic Vision's Johnson said, with each company in its own way breaking new ground in the development of customer-friendly technology.

Still, given the potential explosiveness of this issue -- kids running amok with their parents' accounts -- Amazon and Apple both might have done a better job of thinking through the issue, he added.

"Somewhere, someone stumbled," said Johnson. "This should have been a no-brainer from the beginning."

Amazon declined to comment for this story, with spokesperson Rena Lunak only pointing CRM Buyer to a widely circulating letter the company sent to the FTC on July 1 and two third-party published quotes on the matter.

Erika Morphy has been writing about technology, finance and business issues for more than 20 years. She lives in Silver Spring, Md.